Press Comment : Phoenix Four are the Unacceptable face of Capitalism
David Bailey, Birmingham Post, 11th September, 2009
The bosses running carmaker MG Rover awarded themselves “unreasonably large” payouts, the long-awaited Department of Business report has said today. The firm went bust back in 2005 owing £1.3 billion and with the loss of 6,300 jobs,
The pay and pensions of five Directors added up to some £42m yet the risks they took were ‘relatively unsubstantial’. The firm was a minnow in car industry terms yet the directors claimed they were doing similar work to the bosses of a major car transnational. Nice work if you can get it, eh?
Indeed, the report states that they “chose to give themselves rewards out of all proportion to the incomes which they had previously commanded, which were also large when compared with remuneration paid in other companies and which were not obviously demanded by their qualifications and experience”.
In fact, the Directors tried to extract more from the complex operations of the group. Two ‘projects’ called Lisa and Patto would have been owned by the Four, not MG Rover. For example, Patto was an attempt to reduce the indebtedness to BMW of Techtronic, which would have had the effect of increasing the value of the Four’s shares. This was abandoned when BMW realised what was going on.
And the distribution of assets and liabilities in the complex group meant that assets were allocated to non- MG Rover companies in the group, while MG Rover was made to bear liabilities that should have been borne by Phoenix. In addition, tax losses to which MG Rover were entitled were transferred to Phoenix.
Whilst there was evidence of a questionable press briefing by an adviser to then Trade Secretary Patricia Hewitt, the report contains surprisingly little criticism of the Government.
Some other key findings include:
Mr Beale used software to “clean” data from his personal computer, a day after investigators were appointed, despite being aware that the investigators would want to we would want to “image and then review the contents of his computer for documents relevant to our investigation”
MPs investigating the demise of the firm were given “inaccurate and misleading information” by Mr Beale.
A £470,000 bill to solicitors Eversheds which was invoiced to Phoenix was authorised to be paid by MG Rover the day before the frim went into administration. The Inspectors note that “it seems to us that Mr Beale probably authorised the payment with a view to benefiting PVH [the holding company] – so that PVH would not have to pay.”
The report also found that the Government couldn’t be blamed for the collapse of the talks in 2005 between MG Rover and Shanghai, as the latter had by then lost interest in Rover as a going concern. Whilst the British Government “seriously” considered offering a £100m bridging loan to facilitate the deal, it rightly decided there was little realistic prospect of it being repaid.” Professor David Bailey, Coventry University Business School
The Business Secretary, Lord Mandelson, today said proceedings would begin against the four businessmen to formally ban them. That’s quite right – the words ‘unacceptable face of capitalism’ spring to mind.
The report also found that the Government couldn’t be blamed for the collapse of the talks in 2005 between MG Rover and Shanghai, as the latter had by then lost interest in Rover as a going concern. Whilst the British Government “seriously” considered offering a £100m bridging loan to facilitate the deal, it rightly decided there was little realistic prospect of it being repaid.
On this the report states that “to make a loan in such circumstances could hardly have been a proper use of public funds and would (as we understand it) have been illegal under EU law”.
Lord Mandelson stated today that “we are also determined to learn any lessons we can to ensure greater transparency about the impact of decisions which Directors are making and the state of the companies they are running. To this end, I am asking the Financial Reporting Council to review the report to see whether changes to audit or accounting standards or guidance should be considered.”
The report has therefore been sent to the Accounting and Actuarial Discipline Board (that’s part of the Financial Reporting Council – the FRC) which is currently investigating the work done by Deloitte’s for the Rover Group. The AADB will review the Inspectors’ report to see whether there are issues which need to be followed up.
Of particular interest, the Inspectors suggested that improvements could be made to auditing and reporting standards that would increase transparency in financial statements. The issue of ‘going concern’ may need looking at again and the FRC will be asked to look at this.
The report also suggests that although the transfer of assets and tax losses between companies with the Rover Group was in accordance with accounting standards, readers of the financial statements would have been better informed had the “true or potential value of these assets been explained”. Here the report suggests that making such disclosures mandatory would improve understanding of a company’s financial performance. This will now be looked at by the UK Accounting Standards Board (also part of the Financial Reporting Council).
Overall the report tells us that:
1. The Directors feathered their own beds and shifted money around a hugely complex group structure for the benefit of Phoenix, not MG Rover.
2. Accounting and auditing procedures need to be looked at so as to provide greater transparency and accountability.
3. The Government was not responsible for the collapse of talks.
Let’s hope that this provides some closure for the real losers here – the MG Rover workers. Let’s hope as well that Phoenix now transfer the funds from the sale of assets in the Trust Fund for ex-workers. They have, after all, been waiting for four years…
The full report is available at: www.bis.gov.uk/mgrover-report
[Source: Birmingham Post]
[Editor’s Note: Professor David Bailey works at Coventry University Business School.]